Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Hansard source

The legislation we are considering is the Future Fund Bill 2005. In speaking to this legislation on behalf of the Labor Party, I indicate that the Labor Party will be supporting it and that I will be moving a second reading amendment later, during business. This legislation gives effect to the government’s commitment to create a fund to provide for public sector superannuation liability payments. The liabilities, which are to continue to accrue, will gradually increase over the next 25 years, approximately, when they will reach a peak and then start to decline. At the present time these liabilities are paid from the budget on a pay-as-you-go basis. We pay the current age pension liabilities in the same way—on a pay-as-you-go basis. I point out that we have not set up a separate fund to pay the increasing age pension liabilities of this country. So it is not uncritical support that we bring to this legislation; there are some aspects of it that do concern us.

However, the purpose of this bill is to establish the fund and to provide it with funding from a number of sources, including the sale proceeds of Telstra. That in itself leads to questions about what moneys will be going into the Future Fund from the sale proceeds of Telstra and how certain governance issues that I will get to a little later will be exercised.

I wish to deal with a number of aspects of the Future Fund Bill. I will focus on what we regard as some serious weaknesses in the approach taken by the government, particularly in governance matters and the general efficiency of establishing a separate fund. We believe that the rationale for those two principles is questionable.

The public sector superannuation liabilities that the government is seeking to offset are finite because most of the relevant schemes and those that contain the greatest liabilities have been closed. These are the defined benefit schemes, the main public sector schemes—the PSS and the CSS—and also the Parliamentary Superannuation Fund. There are, however, a number of still open defined benefit funds or schemes—those that relate to the military, the Governor-General and judges. They will continue to accrue increasing liabilities.

If we look at the current pay-as-you-go basis for our public sector superannuation liabilities, we see that they are not a significant burden on the budget. They are well managed and they are well contained as a cost. There has been no particular difficulty in meeting those expenditures on a pay-as-you-go basis. At the present time they amount to approximately $4 billion per annum. That is a couple of per cent of total budget outlays. That $4 billion is likely to increase at its maximum and peak at a figure of approximately $7 billion. It may perhaps reach some 3½ per cent of total budget outlays. So it is a relatively small proportion of the total budget. As I said earlier, if we follow the logic of creating a fund to cover public sector super liabilities, presumably the same logic would be that you would establish a fund to meet what is effectively a defined benefit fund for the payment of age pension liabilities. But we are not proposing to do that.

What is being created is, over time, a very large, stand-alone and supposedly independent investment fund in order to provide for the payment of these liabilities. It is an investment fund separate from the funds that contain the public sector super liabilities themselves. In many respects it is the equivalent of an individual establishing a separate bank account with a large capital sum in order to use the interest that is earned year on year from that bank account to pay for, for example, their council rates or a significant ongoing liability that they know they are going to continuously receive. Council rates for an individual or a family are a significant impost. They can often cause difficulty with budgeting when they arrive. Sometimes people pay them quarterly; sometimes they pay them half-yearly or yearly. They do create difficulties for some people. Ultimately, it is not really sensible for people to set up separate bank accounts to earn interest in order to cover what will be an ongoing liability over 20, 30 or 40 years in respect of substantial areas of expenditure. But that is effectively what the government is doing here in seeking to cover a liability in this way.

The setting-up of a separate fund does involve an operational cost, approximately $30 million a year, and we will get those final figures once the fund is up and running. It is an estimated $30 million a year to establish a separate fund when in fact the public sector superannuation funds that contain the liabilities also contain some assets. It poses the fundamental question: why aren’t the moneys being placed in the superannuation fund structures themselves? It would be a far more efficient way and, I would argue, a much safer way in terms of governance to place the funds into the existing public sector superannuation funds. With the creation of a Future Fund, we have got the creation of a new set of management, administration and investment skills, and the costs associated with that, when the investment management skills for the administration of moneys already exist within the current public sector superannuation funds. Nevertheless, the government has determined that it will create a new fund.

In the case of private sector superannuation liabilities, in this country the law requires full funding. An employer must place sufficient assets in the fund and, if there is a shortfall for whatever reason, the employer must correct that shortfall over time. The liability on the employer in the private sector to meet those payments and to meet the funding is not different in concept from what is being proposed by the government with its Future Fund. If in the private sector the law requires funding and the placement of the assets into the superannuation funds structure itself, why are we doing something different with the Future Fund?

The other advantage in placing the moneys within the trust structure of the existing public sector superannuation funds is that the governance arrangements are much stronger and much clearer. If the assets were placed in the existing superannuation funds, they would be covered by superannuation trust law. I would argue that, in terms of governance and preventing a future government—particularly the National Party—diverting moneys from what will be a newly established Future Fund, it would be extraordinarily difficult. It would be much more difficult to do it from an established superannuation funds structure. There would be such an outcry about taking moneys that have been deposited into a superannuation fund that it would be very difficult indeed to do. But a Future Fund, a separate fund, does make it more open to the possibility that we will have the National Party—and some of them at least, except for Senator McGauran, are socialists a hundred kilometres outside the GPO—wanting to dabble in all sorts of particular adventures, and this sort of fund and the governance that is being proposed does not preclude a party like the National Party dabbling in its favourite ventures in rural and regional Australia, using some of the proceeds.

We think it is a questionable approach in terms of the establishment of a new structure which will cost moneys to establish and to service ongoing management when we already have those structures in place doing a perfectly satisfactory job. Even the government, when I raised this issue with Senator Minchin in estimates, acknowledged that the current public sector superannuation fund trustees do a first-class job of administering some $10 billion plus in assets already. They get a very good rate of return with very low management fee costs. Again, it begs the question: why do we need to establish a separate fund?

The Minister for Finance and Administration, Senator Minchin, has argued that there is a conflict of interest between investing money on behalf of individual fund members with their money in a superannuation fund and investing on behalf of government with funds that will ultimately be appropriated for those individuals. That is just totally wrong. That is what a fully funded private sector superannuation fund does at the moment. It takes the money from the individuals and the employer—in this case, the Commonwealth government, if that is the approach—and it manages both groups of money, which are in fact held in trust as an asset to be accessed by the member of the fund, in this case in the form of a pension and/or some lump sum access when the individual reaches the access age.

So the government has a very technical view of this Future Fund and its basis. The government applies full funding requirements to private sector superannuation funds—defined benefit funds. It applies those laws rightly, in my view, very vigorously. The regulator, APRA, ensures full funding through an appropriate trustee, management and investment regime. If the government is applying that principle to itself, why doesn’t it deposit the money into existing superannuation funds?

Then there is the issue of the Telstra proceeds should the Telstra sale proceed. Despite this parliament having authorised the sale of Telstra, the government keeps making the point that it may not yet sell it. There are a number of complex reasons why it cannot sell Telstra or announce a sale date. Basically, the price of the shares has crashed. There are a lot of issues around that—the government’s mishandling of the proposal to sell Telstra not the least of them. The government cannot be sure that it will attract a decent price for the sale of Telstra. We have both the Treasurer and the finance minister, Senator Minchin, arguing an option at this stage that the entire proceeds of Telstra, whatever the value, may be shifted into the Future Fund.

If that occurs, the end result, whether it is just over 50 per cent or some lesser proportion—let us say it is 20 per cent if the government can sell off 30 per cent at a reasonable price—is that we will have a Future Fund overweighted in Telstra shares. That is not a balanced fund to give you a maximum rate of return. It leads to a series of practical issues—about which Telstra itself is concerned—about the Future Fund selling large parcels of Telstra, as it would need to do over time. That will impact on the Telstra share price. So there is a question about what the government will receive in Telstra sale share proceeds if it sells part or all of it and whether it will transfer it into the Future Fund. It also raises an important question of governance. How would the Future Fund exercise the voting rights that come with the shares that are placed in the Future Fund? There are a range of governance difficulties around that.

One of the interesting aspects of the Future Fund is that the government’s projected earning rate is very conservative. I think it is the current long-term bond market rate. I am not sure what that precise figure is, but it is a conservative figure. There would be no sense in setting up a Future Fund unless the long-term real rate of return was going to be higher than the bond rate of return. I think that is what will happen. I think the long-term rate of return will be higher than the bond rate. Looking at long-term balanced investment funds historically indicates that a maximising rate of return commensurate with safety, which is what I think the Future Fund would do, will be higher.

That poses an interesting question: what happens to the actuarial calculated surplus that I believe will exist at points in time? What happens when the government receives the actuarial report that shows the fund is surplus to requirements? What happens to that surplus? Does it remain in the fund and effectively the asset to meet liabilities is accrued at an earlier date?